Once considered a safe bet, Canada’s vast deposits are emerging as among the first and most visible reserves at risk of being stranded by a combination of high costs, low prices and tough new environmental rules.
“For a lot of reasons the oil sands look like a prime candidate for eventual abandonment,” said Jim Krane, an energy fellow at Rice University’s Baker Institute. “One problem is that costs are persistently higher. The high carbon content only makes it worse.”
During most of the past decade, Exxon and other giant oil companies spent billions of dollars in Canada as part of a global quest for new sources of supply, as analysts cautioned about “peak oil,” or the risk of running out of the resource. Prices surged to $140 a barrel.
Companies were driven in part by the need to replenish their reserves of oil and gas, since investors have traditionally looked at such numbers as an important barometer for a resource company’s future.
But now, the worry is more about “peak demand.” Amid a glut of supply that led to a price collapse in 2014 and a tepid recovery, investors and executives at some of the world’s biggest energy producers are considering the possibility that oil demand could peak and then slow in the coming decades.
The shift from a preoccupation with insufficient supply to worries about demand has altered investment priorities away from high-cost opportunities in the Arctic, ultra-deep waters and the oil sands.
Such projects can require billions of dollars in upfront investment and seven to 10 years, or more, to bring returns. Instead, companies are increasingly focusing on new sources of crude oil, such as shale, that don’t require the same massive investment and that can get from development to production much more quickly.